Land Bank v. Monets Export and Manufacturing G.R. No.

161865
(2005)
March 10, 2005
YNARES-SANTIAGO, J.
TOPIC IN SYLLABUS: Doctrine of Independence In commercial letter of credit
SUMMARY: Monet contended that Land Bank (issuing bank) ought to be held liable for paying on
the LOC when the goods actually delivered to Monet (as the applicant of the LOC and also the
buyer of the goods) did not conform to the specifications given.
[Divina,p.9] The issuing bank is not liable for damages even if the shipment did not conform to
the specifications of the applicant. Under the independence principle, the obligation of the
issuing bank to pay the beneficiary arises once the latter is able to submit the stipulated
documents under the letter of credit.
PROCEDURAL ANTECEDENTS: Petition for Review on Certiorari (R45) filed by Land Bank before
the SC.
FACTS:
25 June 1981: Land Bank and Monet executed an agreement whereby the latter was given
a credit line (P250k) secured by the proceeds of its export letters of credit (LOC)
eventually this was increased to P5M.
o However, Monet repeatedly failed to pay its debts, which ballooned to P11.5M
(P11,464,246.19).
31 August 1992: Land Bank filed a complaint for the collection of sum of money, w/
prayer for preliminary attachment, against Monet and the guarantors. [Manila RTC]
Monet, et al. filed a joint Answer w/ Compulsory Counterclaim.
o Alleged that Land Bank had (1) failed and refused to collect the receivables on their
export LOC against Wishbone Trading (HK) totaling $33.4k ($33,434); AND, (2) had
made unauthorized payments on their import LOC to Beautilike (HK) in the amount
of $38.8k ($38,768.4).
15 July 1997: RTC recognized the obligation of Monet, et al. to Land Bank BUT
granted the counterclaim against Land Bank ($30k).
Land Bank filed an appeal with the CA.
9 October 2003: CA affirmed the RTC (and denied the MR).
o Held that due to the non-collection (Wishbone) and the unauthorized payment
(Beautilike), Monet suffered from lack of financial resources sufficient to buy the
necessary materials to fill up standing orders from customers.
ISSUES:
1. ***Did the RTC and CA err in holding that Land Bank failed to protect Monets
interest, vis--vis the unauthorized payment to Beautilike, despite discrepancies
in the shipment vis--vis the order specifications of Monet?***
2. Did the RTC and CA err in holding that Land Bank was liable for opportunity
losses, vis--vis the Wishbone transaction?
3. Did the RTC and CA err in limiting the obligation of Monet to Land Bank to what
was stated in Exhibit 9 (Schedule of Amortization from the Loans and Discounts
Department of LANDBANK)?
PETITIONERS ARGUMENT:
1. Upon its receipt of the documents of title conforming with what the LOC requires, it was
duty-bound to pay the seller.
o As the issuing bank (Beautilike), it only deals in documents and is NOT involved in
the contract between the parties the relationship between the beneficiary and the
issuer is NOT strictly contractual as privity and meeting of the minds are lacking.
2. [Note: not expressly discussed.]
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3. [Note: not expressly discussed.]

RESPONDENTS ARGUMENT: [Note: not expressly discussed.]
1. [Note: not expressly discussed.]
2. Land Bank failed in its duty to protect Monets interest in collecting the amount due to it
from its customers.
3. [Note: not expressly discussed.]
HELD: [Dispositive: SC granted the petition]
1. ***YES. No fault or acts of mismanagement can be attributed to Land Bank relative
to the Beautilike transaction.***
What characterizes letters of credit, as distinguished from other accessory contracts, is the
engagement of the issuing bank to pay the seller once the draft and the required shipping
documents are presented to it. In turn, this arrangement assures the seller of prompt
payment, independent of any breach of the main sales contract. By this so-called
independence
principle, the bank determines compliance with the letter of
credit only by examining the shipping documents presented; it is precluded
from determining whether the main contract is actually accomplished or not.
[quoting Bank of America, NT &SA v. CA]
The independence principle assures the seller or the beneficiary of prompt
payment independent of any breach of the main contract and precludes the
issuing bank from determining whether the main contract is actually
accomplished or not. [quoting Transfield Philippines, Inc. v. Luzon Hydro Corp., et al.]
Uniform Customs and Practice (UCP) for Documentary Credits:
o Credits are separate transactions from the sales or other contract/s on which they
may be based banks are in no way concerned with or bound by those other
contracts (even if such contracts are referred to in the credit). [Art. 3]
o Banks do not assume any liability/responsibility for the description, weight, quality,
condition, packing, delivery, value or existence of the goods represented by any
documents. [Art. 15]
SC: if the letter of credit is drawable only after the settlement of any dispute on the main
contract entered into by the applicant of the said letter of credit and the beneficiary, then
there would be no practical and beneficial use for letters of credit in commercial
transactions.
2. NO. Land Bank was properly recognized as the attorney-in-fact of Monet vis--vis
the Wishbone transaction.
As the attorney-in-fact of Monet in transactions involving its export letters of credit, such
as the Wishbone account, Land Bank should have exercised the requisite degree of
diligence in collecting the amount due to the former. The records of this case are bereft of
evidence showing that Land Bank exercised the prudence mandated by its contractual
obligations to Monet.
NOTE: amount awarded via counterclaim reduced to $15k.
3. YES. The lower courts overly relied on the figures contained in Exhibit 39, to the
exclusion of other pieces of documentary evidence annexed by Land Bank to its
complaint.
The amount covered by the said summary pertains only to the indebtedness of Monet to
Land Bank amounting to P2,500,000.00, as covered by one Promissory note in fact, the
records show that several promissory notes had been issued in favor of Land Bank.
o Other evidence showing this:
Consolidated Statement of Account;
Summary of Availments and Payments from 1981 to 1989.
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No explanation was given why only Exhibit 39 was used to determine the indebtedness
due to Land Bank.
NOTE: SC had to remand the case to the lower court in order to determine the total
amount of indebtedness due.

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